Upbeat AGM could lead to increased offer for Breville

At yesterday’s AGM, the management of
Breville Group
(BRG) provided a trading update, announcing that sales and earnings for the year to date had exceeded expectations. The company is expected to achieve underlying net profit after tax of approximately $19 million in 2009-10, although this doesn’t include the impact of non-trading items such as redundancy costs, foreign exchange gains/losses and the takeover response costs that will be involved as a function of
GUD Holdings
’(GUD) prospective acquisition of Breville Group.

The improved trading conditions in Breville’s core markets in Australia and North America are expected to continue through the Christmas season, which accounts for a substantial proportion of group earnings. Breville has begun to realise the benefits of recent cost reductions, and this along with improved market conditions may be enough to prompt GUD Holdings to increase its takeover offer.

There are substantial benefits for GUD Holdings in terms of gaining access to the Breville brand, new markets and manufacturing facilities. These factors along with the dominant market position that the joint entity would have could prompt GUD to increase its takeover offer. Analysts at Foresight Securities are of the view that an increased bid is likely given the substantial synergy benefits available.

GUD Holdings’ takeover bid represents a price of $2.16. Breville’s share price is trading at a premium of approximately 7 per cent relative to GUD’s takeover bid.